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Luxury Cruise Stocks: Risk And Profit Evaluation
Traders know that oil prices, terrorism, and corporate debt restructuring, things that really can't be controlled, have a huge influence on the stock market. Many investors steer clear of airline stocks because of this. They cannot control one of their biggest expenses (fuel) and an act of terrorism can seriously harm the industry.
Why are luxury cruise stocks any better? Rising fuel costs as well as Hurricane Katrina resulted in lower stock prices for companies like Carnival Corporation and Royal Caribbean Cruises Ltd. These two cruise companies account for about 75 percent of the cruise market, worldwide.
When George Allen Smith IV, out of Connecticut, disappeared while on a Royal Caribbean cruise, the industry received lots of negative press.
Certainly, you can find many negatives for cruise stocks and shares, but some traders are bullish. First, there is no direct indication that the vanishing honeymooner out of Connecticut has hurt ticket costs. Valuations on these stocks and shares also look excellent.
Carnival Corporation trades at 16 times estimated 2006 earnings. Its historic range is ten to 30 times earnings. Royal Caribbean trades at fourteen times estimated '06 earnings. Its historic range is five to 24 times earnings. Growth potential is strong as only 4 percent of Americans have ever taken a cruise.
When thinking about cruise stocks, don't forget the risks. A sharp surge in fuel costs or another terrorist attack would likely have a negative effect on cruise stocks.
If you are unsure of this investment, do you know how to short a stock? This might be a better route for you, especially if you're experiencing corporate debt restructuring.
I think the risk outweighs the achievable reward as I don't anticipate cruise lines to considerably outperform the broader market.
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